Download - Paul Fullerton MMI 1030 4-21.ppt
Business Challenges for theManaged Accounts Industry
MMI Annual ConventionBoston, MA April 20-21, 2004
Agenda
Program Sponsors
Asset Managers
Vendors
Cerulli Associates Managed Accounts Research
Decade-long pioneering coverage and analysis
Proprietary database tracking key attributes from more than 300 asset managers and sponsor programs
Completion of more than 200 in-depth interviews with senior management annually
Program SponsorsRejuvenated Focus
Attributes Make Managed Accounts a Systematic Investment Service
Advice Delivery: Rejuvenated Focus on Core Attributes
Client ProfilingAdvisors working with clients to develop an understanding of their assets, liabilities, risk tolerance, and financial goals
Asset AllocationViable asset diversification model, and the specific model applied to each client is determined in the profiling process
Ongoing MonitoringAdvisors conduct regular face-to-face client visits, and make portfolio adjustments in adherence to investment plan
Consolidated StatementsStatements detailing account activity, including a client’s relationship with multiple managers and products
Identifiable, Asset-Based FeeThe fee paid by the client must be discrete and identifiable
Source: Cerulli Associates
The Unified Managed Account (UMA) Is the Platform
Source: Cerulli Associates
UNIFIED MANAGED ACCOUNTClient Profiling
Asset AllocationPerformance Reporting
Client Reports
Financial Consultant
Investor
Core Account
RPM
Hedge Funds
Mutual Funds
ETFs
Indiv. Styles
Specific Program Issues and Concerns
• Separate Account Consultant Programs• Fee disclosure (financial advisors and end-clients), directed brokerage
• Mutual Fund Advisory Programs• Pricing an issue with advisory overlay (2.46% total client fee after exp. ratio)
• Rep-as-Portfolio Manager Programs• Mixed bag, portfolio management systems, sponsors increasing monitoring
capabilities
• Fee-based Brokerage Programs• Advisory or nonadvisory; a nondiscretionary advisory feature would allow
firms to combine other advisory programs into a single delivery environment
Source: Cerulli Associates
Multiproduct Delivery in Managed Accounts
Mutual Funds
Separate Accounts
Individual Securities, ETFs
Mutual Funds
Separate Accounts
Individual Securities, ETFs
Mutual FundsAdvisory Program
Contract
Statement
FeesProfi
le
Separate AccountConsultant Program
Contract
Statement
FeesProfi
le
Fee-BasedBrokerage
Contract
Statement
FeesProfi
le
Unified Managed Account
Contract
Statement
FeesProfi
le
Advisor ClientFUTURE MODEL
CURRENT MODEL
Source: Cerulli Associates
BEF
ORE
UM
AU
MA
UMA Ramifications: Come Together
• Business Unit Head• Due Diligence• Operations• Sales & Marketing
• Broker Workstations
• Accounting• Compliance• Web
• Advisor Compensation• Product Pricing
Transparency• Partner Firm Revenue
Sharing
Source: Cerulli Associates
EconomicPolicy
Changes
Operations &TechnologyOrganization
Managed Account Group (MAG)
Managed Account Groups (MAGs) Continue to Grow in Importance, but Challenges Persist
•Operations and Technology•Connecting the plumbing for the UMA; Drive efficiency
•Asset Manager Due Diligence•Integration issues with multiple groups combining (mutual funds and separate accounts); Broaden universe to include alternative investments? •Evolving role of product development; UMA Portfolio Strategist, Overlay portfolio management, MSAs
•Platform Support (Sales, Marketing, Service)•Training, training, training; Harvesting the next generation of managed accounts financial advisors•Delivering a consistent and unified managed accounts message
Source: Cerulli Associates
Platform Support Is Crucial: Spotlight on Sales & Marketing
Product Research and Management
12%
Sales, Marketing,
Service42%
Senior Management
2%Compliance
6%
Other5%
Operations33%
Sponsor Managed Account Group (MAG) Division of Labor
Source: Cerulli Associates
0%
10%
20%
30%
40%
50%
60%
70%
80%
Tier 1 Tier 2 Tier 3
Rep Headcount (est.) Assets Raised (est.)
Tier 1 Advisors Account for Bulk of Historical B/D Managed Account Business
But…New Compensation Structures Poised to Increase Future Contribution of Tier 2 and Tier 3 Advisors
70%+ fee-based 20-70% fee-based < 20% fee-based
Source: Cerulli Associates
0%10%20%30%40%50%60%70%80%90%
100%
Lack of Supportfor Fee-Based
Business
Quality ofHome-Office
Support
Payout Level,Pricing, Costs
Quality of Fee-Based Program
ProprietaryFinancialPlanningServices
Source: Cerulli Associates
Lack of fee-based platform support is the most prevalent reason cited by FAs for leaving their firm
Supporting the Platform Is Key to Advisor Retention
Major Factor Somewhat Important Not an Issue
New Channel: Private Client Groups (PCGs) Defined
Private Banks Private Client Asset Managers
Private Client Brokerages
Private ClientWealth Advisors
Source: Cerulli Associates
• Individual investor focus, but not large B/D
• Proprietary asset mgmt. (y/n)
• Legacy services: banking, brokerage, asset mgmt.
Decision PointsCA’s PCG Segmentation Methodology
PCG Asset Management Delivery Models
Asset Management Architecture
FIRM TYPES• Private Banks• Private Client Asset
Mgrs• Private Client
Brokerages
100% Proprietary Asset Management
FIRM TYPES• Private Banks• Private Client Asset
Mgrs• Private Client
Brokerages
Access to 3rd Party AssetManagement
FIRM TYPES• Private Client Wealth
Advisors
100% 3rd Party Asset Management
Closed Architecture Hybrid Architecture Open Architecture
<< OpenClosed >>
Examples: Northern Trust, Bel Air Inv. Advisors, Garrett Nagle
Examples: Goldman Sachs, Atlantic Trust, BofA, Bingham Legg
Examples: Ashbridge, Tanager, Greycourt, InTrust Advisors
Source: Cerulli Associates
Centralized Platform: MAGs Will Increasingly Be Leveraged Across Global Affiliates
Wirehouse
Managed Account Group Platform
Bank Brokerage
Private Bank
Global
Investment Product PlatformProduct Development
Money Manager Due DiligenceMarketing & Sales Support
Equity Research (In-house & Third-Party)
Source: Cerulli Associates
Asset ManagersConverging Marketplaces
What’s Helping/Hurting/Complicating
Tailwinds Headwinds
Turbulence
• Demographics• Innovation• Strategic Alliances• Globalization
• Tax and Regulation• Capital Markets• Scandal• Innovation• Fee-based Transition
• Complexity• M&A• Outsourcing• Distribution• Globalization
• Competition• Maturation/Saturation• Profit Pressure• Regulation• Risk• Asset Retention• Velocity of Assets
0%5%
10%15%20%25%30%35%40%45%50%
2000 2001 2002 2003
Eaton Vance
Merrill Lynch Global Private Client
Profit Margins Converging
Pretax Profit Margins
Sources: Company Reports, Cerulli Associates
Operationally Inefficient Marketplace
Logon
Logon
Logon
Logon
Portfolio Manager
Model A
Model B
Model D
Program #1
Program #2
Program #3
Program #4
Program #5
Program #6
Program #7
Program #8
OperationsTeam
Model C
INTERFACE
Source: Cerulli Associates
Asset Managers Program Sponsors
Annual Redemption Rate Data for Separate Accounts Is Marginally Better than Mutual Funds
28.9%
24.3%27.8%
20.8%
0%
10%
20%
30%
40%
50%
2002 2003
Equity LTMF Redemption RateSeparate Account Redemption Rate
Sources: ICI, Cerulli Associates
Combined $85 Billion of Net Cash Flows for 2002 & 2003
Manager Decisions in UMA World
•Product•Building and leveraging appropriate product lineup
•Mutual funds, Separate accounts, ETFs, Hedge funds, etc.
•Salesforce•Effective organization and compensation structures
•Multi-product? (dedicated, hybrid, universal), Trails vs. commissions, Geographic vs. channel vs. demographic
•Distribution Relationships•Developing and maintaining profitable relationships
•Number, Asset quality, Marketing and servicing support, Operations and technology
Source: Cerulli Associates
VendorsLeveling the Playing Field
Vendors
Outsource Providers
• Mellon• State Street• BoNY• PFPC• SEI• JP Morgan• Bisys
• Hyland Software• BTA• Imaging
Solutions• LifeHarbor• SoftPak• IAN • Statement One
Workflow / Efficiency
• Citigroup• Parametric• Placemark• Tamarac• Smartleaf• Upstream
Overlay Management
Vertical Platform Providers vs. Specialist Providers?
Portfolio Accounting/Mgt
• Checkfree APL• SunGuard• FMC• IDS• Metavante• Portia• Advent• DST• FIN• Vestmark• Market Street
Source: Cerulli Associates
Source: Cerulli Associates
Service Providers and Managed Accounts
Broker/DealersBroadening of managed accounts
The advent of the Unified Managed Account platform
New face of correspondent clearing
Asset ManagersLowering operational costs (back-office functions, workflow, etc.)
Enabling new products (MSAs, Overlay Management)
Connecting the dots of distribution through platforms
Mutual Fund-Like Industry “Plumbing” for Separate Accounts?
Program #1
Program #2
Program #3
Program #4
Program #5
PMModel A
Model B
OpsTeam
DTCC/ Industry-
wide Solution
Source: Cerulli Associates
PMModel A
Model B
OpsTeam
PMModel A
Model B
OpsTeam
Mgr #1
Mgr #2
Mgr #3
Asset Managers Program Sponsors
Third-Party Vendors: Consolidation to Continue
Source: Cerulli Associates
Target Acquirer Lockwood Bank of New YorkEnvestnet PMCAdvisorPort PFPCLondon Pacific Advisors SunGardCenturion GE Investments
Independent Third-Party VendorsBrinker FundQuestNet Asset Management Oberon FinancialMeridian Investment AssetMark
Enter Stage Left: Clearing Firms Impacting TPV Marketplace
Service Agency
Captive Salesforce
Broker/DealerCorrespondence
Clearing Platform
Source: Cerulli Associates
Centralized Platform: Retail-Focused Clearing Outlets
Platform Spectrum: Unbundling Functions
ExecutionPlatform
TechnologyManagerResearch
PlatformSupport Sponsor
• Advisors• Sales & Mkt• Training
• Due Diligence
• Monitoring• Product
Creation
• Port Acct.• Workstation• Profiling• Billing
• Clearing• Custody• TA
End-to-End Solution
Source: Cerulli Associates
Concluding Thoughts
•The increasing importance of advice in retail distribution is broadening Managed Accounts to new outlets and deepening advisor penetration.
•Fee-based drivers, Platform access, Simplicity, Advice
•The Unified Managed Account (UMA) is the platform that simplifies and integrates.
•Single port of entry, Increased fee-based business, Product neutral
•Asset manager salesforce and operational decisions can drive efficiencies. Managers need to look for organizational leverage points.
•Corporate structure, Product line legacy, UMA implications
Source: Cerulli Associates
Paul A. FullertonAssociate Director617.437.1098 X118 [email protected]
Jack Rabun Senior Analyst617.437.1098 [email protected]
Further Information
Cerulli Associates575 Boylston StreetBoston, MA 02116www.cerulli.com
Appendix